Analysts who have followed recent developments in the stock market due to worries about the impact of the Coronavirus have not been pleased. They have been dismayed by the dramatic sell off that sent the DOW JONES Industrial Average reeling. It fell by more than 3500 points during the last week of February.
This sell off in stocks focused investors’ attention on assets that were considered safer, such as government bonds.
The anxiety reflected in these investor moves was also underscored by Federal Reserve Chairman Jerome Powell’s announcement that the Fed was prepared to lower interest rates to modify the effects of the pandemic. However, given how low interest rates are already, it is difficult for the Fed to develop a plan to cut interest rates by the amount needed to reduce the economic effects of the disease.
The rapid spread of the virus, reflected in the increase in the number of cases now in many parts of the world, has drawn the attention of the Fed and other policy-making agencies. The Fed has a meeting scheduled for mid-March, and it then will have a better idea of how devastating the effects of the Coronavirus have been on the United States economy.
They will have noticed that the virus has already had a major impact on diverse economies throughout the world, such as South Korea, Germany and Italy.
In a recent article in the Wall Street Journal, Margherita Stancati discusses some of the problems Italian citizens are having as a result of the outbreak of the disease in northern Italy.
“Italians abroad are being treated as a risk, and several countries have already banned travelers from Italy. Others –including China – have imposed a two-week quarantine on people who have recently been to the peninsula.”
It is easy to see that the disease will have a major economic impact on people in many countries. For this reason, though any action by the Fed always poses some risk of unsettling markets, given the present situation, it may not have any choice.
Author and retired educator Dave Kaplan writes from his home in Santa Barbara, Calif.